Ramifications of the Russia – Ukraine conflict

There has been a significant impact on the aviation, automobile, gas and oil sectors.

Automobile – Most car manufacturers, including Renault, Hyundai, Ford, Toyota, Volkswagen and Nissan, closed their factories and sales channels, and withdrew from Russia. Consequently, new-car sales shrank by 52% m/m in March to just 55k vehicles vs 114k units sold in February and 149k in March 2021.

Aviation – All three major aircraft manufacturers, i.e., Boeing, Airbus and Embraer, stopped supplying Russian airlines with planes, spare parts, maintenance and technical support and services. Two-thirds of Russia’s commercial fleet is supplied by these manufacturers; keeping aircraft airworthy would, therefore, become a daunting task for Russian airlines.

Oil – Given Russia’s standing in the crude oil market, any development on the Russia-Ukraine front would have a magnified impact on crude prices and volatility. At USD100/barrel, the price is c.40% higher than aggregate levels seen for most of 2021. As the supply side is unlikely to provide any relief, we foresee demand destruction/reduction as the more likely outcome before the market reaches equilibrium.

Gas – The EU’s gas storage levels have currently hit a bottom, with merely 26% full as of 05 April 2022, below the three-year average. Any disruption to Russian flows could significantly reduce the already low storage levels, reducing the region’s ability to meet demand when the heating season starts.

Although the West remains strong on intent, our blogs show that the sustainability of these sanctions remains to be seen given the high dependence on Russian oil and gas for which there are no substitutes in the near term.